The biggest banks in Europe, North America and Asia are in a global race to provide the $12 trillion in financing needed by 2030 for the historic global transition to a low-carbon economy.
OK, that’s not the dominant headline out of the new report from Boston Common Asset Management, which surveyed 59 major banks about their climate risk-disclosure practices and their specific financing commitments to low-carbon projects. Most coverage said banks’ “superficial approach” “falls short” and “lags on response.” The report criticized the banks’ commitments as “skin deep” and “found urgent shortcomings that threaten to undermine efforts to support the transition to a low carbon-economy.”
But the report could instead have cited increasing buy-in from dozens of major banks to tout the coming capital shift and incite a global banking race to the top. Leaders in the low-carbon transition, the strategic thinking goes, should have an advantage as all banks are increasingly held to account for the climate implications of their lending, asset management and investment banking practices.
The report highlights a growing number of “positive deviants” in global banking. They’re already measuring, disclosing and, more importantly, managing to scenarios that limit global warming to under 2-degrees Celsius, as called for in the Paris climate accord and recommended by the Task Force for Climate-Related Disclosure, the new bible for assessing climate risks. That exercise in hard-nosed risk assessment should drive a sea-change in global finance as the scale of climate disruption becomes clear.
The report, backed by 100 investors representing $2 trillion in assets, took a decidedly glass half-empty approach. The survey found that 49% of banks are using the Paris agreement’s 2-degrees scenario planning, as called for by the Task Force, in order to assess their carbon risk. A similar “less than half” of the 59 banks have explicit targets to finance low-carbon products and services.
Another way of saying that, of course, is that half of global banks finally are doing serious climate-risk assessment and making explicit commitments to finance the low-carbon transition.
Such watchdogging is perhaps the biggest contribution of Boston Common’s report. “In order to better understand which banks are best positioned to seize climate-related opportunities, investors would like to see clear targets and commitments, with a robust strategy backing their implementation,” the report says.
BNP Paribas, for example, has committed to double green investments and provide $15 billion annually in financing for renewable energy projects by 2020. Goldman Sachs has a 2025 target of $150 billion in clean energy financing and investing. Last November, HSBC pledged to provide $100 billion in sustainable financing and investment by 2025. JPMorgan Chase last August said it hoped to facilitate more than $200 billion in clean financing by 2025, or an average of $25 billion per year, compared to about $17 billion in 2016.
TD Bank last year announced a C$100 billion (US $78 billion) target for low-carbon lending, financing, asset management and other programs by 2030. Karen Clarke-Whistler, TD’s chief environment officer, told ImpactAlpha that the technological scaling driving the cost of renewables below fossil fuels is a mega trend that can’t be ignored.
“When you look at what is happening in the market, we are well down the transition to a low-carbon economy, environmentally and economically,” Clarke-Whistler said. “The train has left the station.”
Fourteen of the banks have joined a UN-backed pilot to strengthen assessment and disclosure of climate-related risks and opportunities. Included in the effort are ANZ, Barclays, BBVA, BNP Paribas, Citigroup, DNB, Itaú Unibanco, National Australia Bank, Royal Bank of Canada, Santander, Société Générale, Standard Chartered, TD Bank, and UBS.
In general, European banks are ahead of both North American and Asian institutions. French President Emmanuel Macron is positioning his country — home to the COP that produced the global accord — as a hub of green finance. French banks surveyed by Boston Common all supported the Task Force for Climate-Related disclosure, which is aligned with France’s mandatory financial disclosure rules, known as Article 173.
In the US, the CEOs of Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase and Morgan Stanley were among three dozen that signed a letter to President Trump in The Wall Street Journal calling for the US to remain in the Paris Climate Accord.
In China, the Industrial and Commercial Bank of China became the first Chinese financial institution to do a “bottom-up” review of its climate risk, releasing the findings of its 2016 environment stress test. In Brazil, Itaú Unibanco worked with the International Finance Corp. to raise $400 million to finance renewable energy, water efficiency, energy efficiency and other climate mitigation projects, the largest-ever financing by a Latin American bank specifically for such projects.
Any credit banks hope to get for their “green” financing must be weighed against their continued financing of coal and other major greenhouse-gas-emitting energy projects. The report cites an estimate by environmental groups that global banks provided $600 billion in financing for the top 120 coal plant developers between 2014 and September 2017. Nearly two dozen of the 59 banks have some type of coal restriction. Much rarer are declarations to end all coal funding, such as Nataxis’s commitment to end “financing for coal mining and coal power projects worldwide.”